Understanding your rights and options
If you’re struggling with debts, the worst thing you can do is ignore the problem and hope it will go away.
You may be embarrassed, fearful, or even too proud to ask for help and advice. Don’t let your emotions stop you from tackling your debt. Steps you take now to achieve a more stable financial position will make a big difference.
Working to bring your debts back under control will be difficult and demanding, but necessary, even if you think your situation is hopeless.
- Ways to prioritise your debts
- Your debt payment options
- Determine your priority debts
- Know your rights
- Your creditors’ rights
Ways to prioritise your debts
Your approach for tackling your debts will depend on many things including:
- how much you owe;
- your income;
- the value of your assets;
- actual or possible changes to your working hours or income;
- how long you’ll have limited income (though usually you just don’t know);
- the type of debt you have (credit card, loans, utility bills, for instance);
- the amount of interest that applies to each debt;
- the importance of each debt relative to your other debts,
- the legal consequences of not paying a particular debt;
- your age; and
- your willingness to acknowledge your circumstances and work hard to resolve them.
When you have limited income you soon realise the consequences of not paying some debts are more serious than for others. For example, mortgage and rent debts may be your biggest debts and seem a priority over other debts.
The size of the debt and the amount of emotion and need attached to a possession (like the roof over your head or your car to take your kids to school) are certainly factors in helping you decide the relative priority of your debts. But so too are the specific options available for these debts and the legal consequences of not paying, when you have a reduced income.
Under consumer credit law, your creditor is obliged to provide written information about your loan. For more information go to:
- Sample MoneyHelp Letter: Request for written information about your loan
- Consumer Action Law Centre’s Factsheet: ‘How do I get more information about my loan?’.
Your debt payment options
Consumer legislation and government support schemes and grants have been established to assist you to manage your debts.
By understanding your debts and your payment options and the legal consequences of not paying, you’ll be able to prioritise which debts you pay first. If you at least pay something towards your outstanding debts, your creditors may delay action against you and give you the opportunity to deal with the debt. The options available to you might include:
- asking for informal arrangements during a period of temporary financial hardship, whereby you agree with your creditor to adjust repayments in the short-term only.
- checking to see if you have credit insurance that applies to your debts and loans.
- applying for a hardship variation to your repayments through the available hardship programs for banks, utility companies and credit contracts to either reduce repayments, defer payments, extend the term of your loan or a combination of all these.
- applying to the Financial Ombudsman or the Credit and Investments Ombudsman if your lender does not agree to a formal or informal hardship variation.
- accessing available government grants and loans for debt relief, including the Mortgage Relief Scheme and the Utility Relief Grant.
- getting a debt consolidation loan by combining a number of loans in a new loan (be careful, this will usually cost you more) or an adjustment to your existing mortgage to make the payments more manageable.
- accessing your superannuation early to obtain a lump sum to pay off large, priority debts.
- considering advice from a free financial counselling service such as MoneyHelp about insolvency options such as bankruptcy or a debt agreement.
If you have multiple debts, you will probably benefit by consulting a financial counsellor to assist you.
You can also seek the help of a range of professional service providers, emergency help organisations or personal support agencies.
Determine your priority debts
Some debts are more important than others. As you work out how to prioritise your debts you need to make sure that paying certain bills won’t mean you end up defaulting on others that may have serious legal consequences for you.
You will need to explore and understand the options available to decide how you are going to manage your bill and debt payments.
For example, if you are struggling with mortgage repayments and debt generally, you can apply for a mortgage hardship variation from you lender.
If you get into the situation of being three months behind with your mortgage payments, you may be eligible for a loan under the Mortgage Relief Scheme or to apply to access your superannuation early.
At any stage when you are in debt, you may ask your lender to reduce or defer payments. If they refuse, or the offer is unsatisfactory, you may approach either the Financial Ombudsman Service or the Credit and Investments Ombudsman for help.
If a creditor is threatening legal action and there is no relevant dispute resolution scheme, it may make sense to deal with this debt first, either by paying it our or negotiating a repayment plan. A financial counsellor can help with advice on this and in negotiating with the creditor.
Know your rights
It’s important that you know your rights. You have a legal right to ask for a change to your current payment arrangements for many bills and debts (including loans taken for personal, household or domestic purposes, and loans for property investment purposes taken after July 1 2010) when you are experiencing financial hardship.
Creditors cannot have you sent to prison because you cannot afford to pay. If they think you have deliberately refused or neglected to pay when you could have done so, they may not be as willing to negotiate with you for a payment plan when you ask for one.
Many of your creditors are legally obliged to consider your request for special payment arrangements that are affordable when you are in financial hardship. They may agree to alternative formal or informal payment arrangements if you ask for them.
However, your creditor is not obliged to agree to any particular payment plan you request. While they are considering an offer from you for a non-standard payment, you may start paying as if they had already agreed to it. You should also be aware that if your creditor does not agree to a request, you may apply to the relevant ombudsman scheme for the payment plan you seek.
Your creditors’ rights
Creditors have rights under the law to pursue you for money you owe them. They can take action to recover their money by following a lawful process. They may:
- seize any property which they have secured —including repossessing your home;
- evict you from rented premises if they are your landlord;
- disconnect your gas or electricity or restrict water flow to your premises in certain circumstances if they are your utility provider;
- disconnect your phone if they are your service provider; or
- take you to court.
Neither your creditors nor debt collectors working for them (or to whom they have sold your debt) can seize any goods unless they are secured by the loan. If they have a court order that you owe the debt, they can then apply to the court for an order for the Sheriff to seize and sell your possessions. Certain items are exempt, such as normal household goods or a car if you have $7,500.00 or less equity in it – or it is worth less than $7,500.00.
Check with a financial counsellor about which items your creditor or debt collector can seize in your circumstances.
If your dispute relates to a credit debt (such as a credit card, home loan, personal loan, etc) both the Financial Ombudsman Service and Credit and Investments Ombudsman can award damages for non-financial loss, including stress and inconvenience.